Getting priorities right on tax subsidies for oil companies

ExxonMobil paid no U.S. federal income tax in 2009. In fact, it was entitled to a $156 million tax refund. Why? CAP’s Sima J. Gandhi, has the answer in this repost.

The answer is more boring than you think: It overpaid its 2008 taxes.

ExxonMobil was required to bolster its pension plan by $3 billion when the market went down in 2008. According to Alan Jeffers, Exxon’s media relations manager, this overpayment reduced the amount of taxes owed in 2008, but the tax adjustment wasn’t made until one year later, which led to an overpayment and the refund in 2009.

But what’s more interesting about this story is Exxon’s effective income tax rate. Exxon has over the past couple years paid a U.S. federal income tax that is about 10 percent lower than its non-U.S. effective tax rate. Other oil companies also pay less, and in some years this difference has approached 50 percentage points.*

Oil companies pay less in U.S. taxes in part because they receive generous tax subsidies. These subsidies will cost the U.S. government about $3 billion next year in lost revenue and nearly $20 billion over the next five years.

Tax expenditures are government spending through the tax code. They are distributed through deductions, exclusions, credits, exemptions, preferential tax rates, and deferrals. What makes them look different from grants or checks is that they are delivered through the tax code as part of tax expenditure spending programs.

These tax expenditures can amount to a significant portion of federal subsidies for oil and gas. The cost of tax expenditure programs for oil and gas companies made up about 88 percent of total federal subsidies in 2006.

As Jeffers stated, “I’m not in a position to make a judgment on the tax policy, but what it is we adhere to.” Tax expenditures are simply a function of our country’s tax policy.

Exxon will continue to adhere to current tax policy, enjoying the tax subsidies it receives from it”¦unless Congress cuts these subsidies.

And there’s good reason to believe that Congress should cut them. The billions in tax subsidies we spend each year should support government priorities that generate results and value for the American people. And it’s not clear that a few billion in subsidies for oil companies does much to impact their business decisions.

According to estimates from the Office of Economic Policy at the Department of Treasury, removing subsidies for the oil industry would at most affect domestic production by less than one-half of 1 percent.

Billions of dollars in tax subsidies can make or break some industries, but they may not be as important to oil companies. Even Exxon recognizes that other types of government action may affect its bottom line more than tax subsidies. Jeffers noted, “We are advocating for opening up public resources. [Support for oil companies] is fundamentally about what you want your public policy to do.”

So billions in tax subsidies may not be doing much of anything. But who would look a gift horse in the mouth? Eliminating these billions could make a real difference to American taxpayers.

Cutting this spending could help reduce our fiscal deficit. President Obama is creating a bipartisan commission to examine spending cuts that will reduce the deficit. The $20 billion saved over the next five years from eliminating these programs would be enough to cover this year’s Federal Drug Administration’s budget and the operations of the Smithsonian Institution, with a little left over.

Tax expenditure spending programs should support public policies. Our country has made clear its commitment to clean energy. President Obama, along with 19 other world leaders at the G-20 conference in Pittsburg, signed a pledge to phase outsubsidies for fossil fuels. If the government’s energy policy supports clean energy initiatives, it doesn’t make sense to put billions in tax subsidies for oil companies.

As Jeffers said, “Determine what your public policy is, and then you have a number of levers to obtain that goal. It’s not for me to say whether tax is an appropriate lever or not, that’s for someone else.”

That someone else is Congress.

*Effective tax rates calculated under the methodology used by Citizens for Tax Justice.

Sima Gandhi is a Senior Policy Analyst with the Doing What Works project at the Center for American Progress.

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13 Responses to Pumping tax dollars to big oil

Thanks for this. It’s not just the tax breaks, there are innumerable other subsidies in the form of depreciation benefits and complex writeoffs and credits. For fossil fuels as a whole, I’ve seen these breaks estimated at between $41 and $49 billion annually. The timber industry is deep in the trough too, as if we needed to encourage them to go over to the last mountain ranges, something that happened 100 years ago.

I’ve talked to Congressmen about this, including in Committee testimony. They don’t like to discuss it, because it makes our whole government look shameful. They will normally say “we’re not taking their breaks away, but maybe we’ll come up with something for you people”.

This all needs to see the light of day. When Steve Horn, chairman of the House Government Oversight Committee(a Republican) was on the case in the 90’s, his district got redrawn to favor Democrats, with quiet cooperation from his own Party.

I’m glad that the Obama Administration has at lease raised the issue. Let’s see some follow through. We can start by publicly shaming all the Mitch McConnells, who will support any industry that waves hundred dollar bills in their faces.

Deduction of expenses are Not considered subsidies by Generally Accepted acocounting principles.
The other issue many have is double taxation. Exxon is multinational and pays taxes where it makes the money. They may have losses in America and profits in Russia at sakhalin island refinery.
General Electric shows 10.3 billion in Net before taxes and was issued a 1.1 billion dollar refund. Their tax return was 24,0000 pages long. I like my GE stock anual report but I can see the 10k filings but not the tax return.

mike roddy: The injustice of it all. Sitting here thinking back on almost 50 years of resistance to these powers and seeing some progress around the edges, civil rights, watergate, what environmental laws we have, and how hard the battles were fought, the lives lost, the time taken, and the distance to go and the time left, all before breakfast, good grief… It sure looks like “a hard rain is going to fall.” “Well, we’ve have got to try.”

First, if an energy company provides us (humankind, society, the public) with a form of energy, and if it claims to be doing so according to good ole’ hard work, competition, the marketplace, and so forth, and in a way that carries its own load and pays for its own lunches, and if the particular energy product it provides generates immense amounts of CO2 into the atmosphere, then the company should either have to strip out the CO2 from its products’ emissions (and include the cost of doing so in the price of its products), or it should have to pay for stripping that amount of CO2 out of the atmosphere after it gets there (and include the cost of doing so in the price of its products), or it should have to pay for all (and I mean all) the damage that results from climate changes that result from increasing concentrations of atmospheric CO2, as well as for societal efforts to mitigate such damage, or it should find another energy product to provide to us, or it should cease to exist.

In other words, products and companies should pay their way. Companies should not get a “free lunch”. Prices should reflect “all in” costs. The public should not subsidize products. If a product causes damage, the companies that sell us that product should have to pay for that damage.

We all understand this point: Children (above a reasonable age, anyhow) should avoid creating messes in the house or else, if they do, they should clean up the messes that they do create.

A “price” on CO2 would not be an unfair, arbitrary “tax” that amounts to an imposition of government into the business of businesses, that runs contradictory to a healthy free market system. Instead, the fair price of hydrocarbon-based fuel sources that generate huge “net” amounts of CO2 SHOULD reflect the costs associated with putting CO2 into the atmosphere or the costs associated with keeping those amounts of CO2 out of the atmosphere. Period. If we want to have a free market, with minimal regulations, let’s insist on a free market that genuinely reflects costs, that is not subsidized by all members of the public, that doesn’t get a free lunch, and that does not whimper and whine when the public insists that it not be allowed to freely mess up the atmosphere.

I can’t stomach whimpering and whining when it seems to come from ExxonMobil executives who are, presumably, grown-up Texan men. Grown-up Texan men are not supposed to whimper and whine and want a free lunch, I’ve been told.

Plainly and simply, it seems to me that ExxonMobil executives are acting like spoiled children. They want to continue creating a mess. They want to continue doing things that create a mess. They don’t want to have to include the full costs associated with their product into the price of their product. They want the public to subsidize them as they pay each other tens of millions of dollars and send dividend checks to shareholders of billions of dollars. They want to continue the “free lunch” that they’ve been getting for many decades now.

Let me suggest that we – yes, we – are just plain stupid if we accept their behaviors and deceptions.

In 2008, ExxonMobil’s Chairman and CEO Rex Tillerson said this (according to The New York Times): “My view is I am going to keep doing what we do better than anyone else in the world – finding, developing and delivering oil and gas to the world.” (See the interview of Tillerson by Jad Mouawad, NY Times, July 19, 2008.)

On the other hand, Albert Einstein (who was probably much smarter, much more wise, and much more trustworthy than Tillerson) has said this: “The significant problems we have cannot be solved at the same level of thinking with which we created them.”

Is the contrast clear?

According to a simple estimate based on their own figure of total oil-equivalent barrels available for sale, the use of ExxonMobil products alone generates well over One TRILLION Pounds of CO2 into the atmosphere each year. That’s over one TRILLION pounds. The amount weighs more than the entire weight of the human species on Earth today, i.e., more than all 6.8 billion of us combined. And, that’s only the amount generated by the USE of ExxonMobil products: It doesn’t include the CO2 or other GHGs generated by ExxonMobil’s own direct activities, e.g., production, logistics, refining, distribution, exploration, etc.

It’s time to stop subsidizing ExxonMobil and the others. It’s time to insist that they pay their full and fair way. It’s time to stop giving them a free lunch at our expense, the expense of future human generations, the expense of other species, and the expense of the very stability of Earth’s climate system. It’s time to see their whimpering and whining for what it is, and challenge them on it.

I bought a box of Girl Scout cookies yesterday. Printed on the side of the box are the large words “Courage. Confidence. Character.” Bravo to the Girl Scouts for reminding us of those words.

This sentence “The cost of tax expenditure programs for oil and gas companies made up about 88 percent of total federal subsidies in 2006.” seems to me a bit misleading. At first glance I interpreted as “total federal subsidies” not “total federal subsidies for oil and gas”. Which is quite a different thing.

Chavez had the same views toward both Exxon and Conoco. He thought he was carrying them and not they were benefiting Venezuela. He of course took Exxon properties. Picking on a corporation and denegrating it is the early stage of making people angry and taking over the assets. This is how dictators think and operate.

Oil was already nationalized in Venezuela before Chavez took over, and administered by PDVSA. Exxon and Conoco had only remnant operations. I worked in Venezuela for while.

We should nationalize Exxon, actually, since they are criminals (see Jeff’s post) and act accordingly. Now they are trying to corner the natural gas market and keep prices low for a while, busting out solar and wind if possible. Nationalization would be a big improvement- and by the way, dictators (such as the Saudi Royal family) are the ones who are more likely to work closely with companies like Exxon. Or wanne be dictators, like Dick Cheney.

“or it should have to pay for all (and I mean all) the damage that results from climate changes that result from increasing concentrations of atmospheric CO2, ”

This is from Wikipedia, but it’s probably a reasonable summation.

“Nuisance in English law is an area of tort law broadly divided into two torts; private nuisance, where the actions of the defendant are “causing a substantial and unreasonable interference with a [claimant]’s land or his use or enjoyment of that land”,[1] and public nuisance, where the defendant’s actions “materially affects the reasonable comfort and convenience of life of a class of Her Majesty’s subjects”;[2] public nuisance is also a crime. Both torts have been present from the time of Henry III, being affected by a variety of philosophical shifts through the years which saw them become first looser and then far more stringent and less protecting of an individual’s rights. Each tort requires the claimant to prove that the defendant’s actions caused interference, which was unreasonable, and in some situations the intention of the defendant may also be taken into account. A significant difference is that private nuisance does not allow a claimant to claim for any personal injury suffered, while public nuisance does.”

Of course it’s much too late at this point for legal action be any use, for example the exxon mobile spill lawsuit may be ongoing.

The real issue is how to pry loose the deathgrip that big polluters have on lawmakers, especially when they can pour millions of dollars into campaign coffers and campaign ads. How can we ever shame lawmakers sufficiently to get them to vote to repeal the bogus tax breaks that we can no longer afford?

As I understand, there are direct, indirect and externalized subsidies for an economic activity. Out of some $fifty billion fossil fuel subsidies annually in the US, in the first two categories apparently some 88% are indirect type of tax expenditures. Externalized costs (a type of cooking the books) are approx. an order of magnitude greater, as numerous reports on security and public health have shown.

These totals indicate hundreds of billions of annual public costs in the US alone that are poured into activities that climate science and public health preservation indicate must cease. An ultimate reality of our national history is that we have spent trillions of historic “fuel subsidies” for uranium, coal and petroleum fluids for rapid twentieth century expansion by perversely defining these as “energy resources” rather than mined materials, while basing our entire public economic policy on these perversities. Thus the coming national and global ecologic and economic impoverishments are beginning to manifest and the themes of corporatism (or corporate fascism), fraud and corruption are becoming universal.

So let’s have some more clean methane, clean coal, off-shore oil and clean, safe atomic fission. The fix will soon be in (the senate). Some of the terrorists of concern are the ones we elected, who have distorted eco-nomics to an extent unrecognizable for sustenance of public welfare.

P.S. Thanks to the Germans and Chinese, maybe they can help save our sorry asses in the United States of Corruption.

No, dictators usually operate in collusion with the industrialists. Oh, I forgot, Chavez is a left wing dictator. Not like the dozen or so right wing dictators the U.S. has supported or put in power all over the world. Noriega, Pinochet, Peron, Marcos, Shah of Iran, Saddam Hussein, and others. Look up the history of Guatamala and the United Fruit company, just to give one example of a banana republic, of which there were several. Twice, the U.S. has had democratically elected heads of state removed, and replaced by right wing dictators, Iran and Peru. Yet Fox News tried to spin the fact that Obama smiled when he met Chavez in public. How dare he. Of course they skipped the part where, from the body language it was clear that Obama was reading him the riot act a few moments later.

It gets a little tiresome listening to those who say renewable energy shouldn’t be supported with subsidies, when oil has been subsidized since 1918 and coal since 1932.

Koplow says he knows of no oil subsidy since then, that has ever been phased out.

“or it should have to pay for all (and I mean all) the damage that results from climate changes that result from increasing concentrations of atmospheric CO2, ”

This is from Wikipedia, but it’s probably a reasonable summation.

“Nuisance in English law is an area of tort law broadly divided into two torts; private nuisance, where the actions of the defendant are “causing a substantial and unreasonable interference with a [claimant]’s land or his use or enjoyment of that land”,[1] and public nuisance, where the defendant’s actions “materially affects the reasonable comfort and convenience of life of a class of Her Majesty’s subjects”;[2] public nuisance is also a crime. Both torts have been present from the time of Henry III, being affected by a variety of philosophical shifts through the years which saw them become first looser and then far more stringent and less protecting of an individual’s rights. Each tort requires the claimant to prove that the defendant’s actions caused interference, which was unreasonable, and in some situations the intention of the defendant may also be taken into account. A significant difference is that private nuisance does not allow a claimant to claim for any personal injury suffered, while public nuisance does.”

Of course it’s much too late at this point for legal action be any use, for example the exxon mobile spill lawsuit may be ongoing.

Yes, if ExxonMobil helps break the climate, they should have to pay damages for that.

Since the cost of destabilizing the climate is so immense, and as punitive damages, it should simply be nationalized and converted to production of biofuels by force.

Admittedly, the conversion of ExxonMobil to the production of cellulosic ethanol and other biofuels will be a huge job. But if we let them do it themselves, they will complete the process, screaming about injustice all the way, about the time we hit 1000 ppm atmospheric concentration of CO2 and throw the planet into truly irreversible runaway global heating, IMO.

Nationalize them, and the coal companies and coal fired power plants, at the same time. Convert ExxonMobil to mostly carbon neutral production of biofuels, on an emergency WWII style basis. Convert the coal fired power plants to carbon negative Bio-Energy with Carbon Capture and Storage (BECCS) power plants.

That is the sort of emergency response the extremely rapid climate change we are seeing demands, IMO.

First comes survival, for ourselves and future generations.

Then, after that, come all the arguments over capitalist ideology.

No system of economic theory is more fundamental than survival itself.